Banks Report that Fewer Home Equity Loans Are Delinquent.

The performance of home equity loans improved in the fourth quarter of last year, but home equity is no longer head of the class among the consumer credit categories.

The rise of B&C credit quality lending has tarnished the home equity sector a bit, which once outperformed all other consumer credit sectors at banks but now is in the middle of the pack.

The American Bankers Association reported that 2.5% of closed-end home equity loans were delinquent at the end of last year, down two basis points from the third quarter. The delinquency rate on home equity lines of credit slipped nine basis points to 0.43% from 0.52%. HELOCs had the lowest delinquency rate of the eight consumer loan types tracked in the ABA survey.

But the delinquency rate on closed-end home equity loans exceeds the delinquency rate on auto loans. The delinquency rate on direct auto loans dropped to 2.36% from 2.46% in the third quarter.

That's a change from the 1990s, when closed-end home equity loans almost always outperformed auto loans held by banks.

ABA senior economist Keith Leggett told NMN that differences in the credit quality of borrowers probably account for the disparity in delinquency rates between home equity loans and HELOCs. Increasingly, closed-end home equity loans are serving B&C credit borrowers, whereas bank HELOCs continue to serve a predominantly "A" credit constituency that is more skilled in financial management, he said.

He also noted that according to data from the Federal Reserve, home equity lending by banks has been rising. Banks increased their home equity loan portfolios by $300 billion between the end of 2001 and the end of last year.